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Micro‐responses to shocks: pricing, promotion, and entry

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  • Alexis Antoniades
  • Sofronis Clerides
  • Mingzhi Xu

Abstract

We study the market response to firm‐specific demand shocks in a natural experiment setting. In 2006, a boycott of Danish products in several Arab countries was devastating for Danish cheese products firms. In Saudi Arabia, their market share collapsed from 16.5 percent in January to below 1 percent in March, and never fully recovered; by 2009, it was 6.3 percent. By analyzing micro‐level (scanner) price and sales data, we find the following. (i) Danish firms lowered prices but kept the product mix the same. (ii) Non‐Danish firms kept prices constant but changed their product mix by introducing new products and new product bundles. (iii) Non‐Danish firms chose to introduce products that were similar to the Danish products in characteristic space in order to compete head‐to‐head. We complement the analysis with a theoretical framework that helps to account for our main findings.

Suggested Citation

  • Alexis Antoniades & Sofronis Clerides & Mingzhi Xu, 2023. "Micro‐responses to shocks: pricing, promotion, and entry," Scandinavian Journal of Economics, Wiley Blackwell, vol. 125(3), pages 584-615, July.
    • Handle: RePEc:bla:scandj:v:125:y:2023:i:3:p:584-615
    DOI: 10.1111/sjoe.12527
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    JEL classification:

    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General

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